Armstrong Energy is facing challenges from the market that may threaten the viability and profitability of its proposed coal export terminal in Louisiana, a new Public Citizen report (Armstrong Coal final report) finds. A failed company and abandoned export terminal would create significant costs for Plaquemines Parish.
In the report, “RAMming It Down Our Throats: Armstrong Energy Could Leave Louisiana Taxpayers Holding the Bag on Its Proposed RAM Terminal,” Public Citizen looked at Armstrong Energy’s financial condition and the effect of market conditions on the coal export company.
“Armstrong Energy is in hot water,” said Hillary Corgey, researcher for Public Citizen and the report’s author. “Between rising debt, market conditions unfavorable to coal, and climate change, the RAM Terminal may have a good chance of sinking, both in terms of its hurricane-prone location and the viability of the company.”
The RAM Terminal is to be built near the 150-year old community of Ironton in Plaquemines Parish, La., 30 miles south of New Orleans. The terminal is to be fully operational within two years of construction and ship 10 million tons of coal. Two hearings on August 14 and 15 attracted more than 100 residents who oppose the terminal’s latest push for permits.
The report found that:
- Missouri-based Armstrong Energy did not go public in 2012 because of weak market conditions for coal and outdated numbers in its 2011 prospectus.
- Armstrong Energy’s bond rating is B3 corporate family rating, making it speculative grade, or colloquially, a junk bond that has a substantial chance of defaulting. The credit rating service Moody’s cites Armstrong’s “small scale and lack of operating diversification, weak profitability … high degree of customer concentration, and the inherent geological and operating risks associated with coal mining.”
- Armstrong Energy is facing a $13 million lawsuit over royalties and a lawsuit over broken contracts that could cost the company tens of millions of dollars – more than the company’s net earnings in 2011.
- The company’s debt nearly doubled between 2010 and 2011, from $139.8 to $244.8 million, and its net earnings sank in the same time period by more than $4.6 million to $3.4 million.
- Several factors could dampen the economies of India and China in the next five to seven years, thereby reducing the demand for coal.
- Stronger pollution reduction standards, community groups fighting coal plants and the pollution they generate, and the increased use of natural gas are reducing coal demand in the U.S.
There is no publicly available information on the estimated cost of the terminal, making it harder for residents to know how much the parish will spend on the project. Regardless of the cost, Plaquemines Parish plans to issue revenue bonds for the project, putting the government on the hook if the project goes under.
“The simple fact is that coal companies are drowning in debt and have nowhere to sell their product. In the face of this, they are seeking taxpayer money to keep their companies afloat,” said Tom “Smitty” Smith, director of Public Citizen’s Texas office. “The residents of Louisiana and Plaquemines Parish should not pay for infrastructure for an industry that is drowning.”
Public Citizen is a member of the Clean Gulf Commerce Coalition, a group that partners with the Sierra Club, the Gulf Restoration Network, and several others to stop coal exports overseas.